Ares Capital Corp. is leading the $1.075 financing, announced today, which is the largest-ever unitranche credit facility by a BDC. Unitranche combines different tiers of debt, which normally would have different interest rates, into a single loan.

Private equity firm Thoma Bravo is buying Qlik, based in Radnor, Pa., but founded in Sweden, which provides data visualization and analytics software. Shares trade on Nasdaq under the ticker QLIK.

Golub Capital, TPG’s dedicated credit and special situations platform, or TSSP, and Varagon Capital Partners are also joint lead arrangers.

It remains to be seen if this is the advent of a new lending landscape in which unitranche deals of $1 billion or more are commonplace. The acquisition financing for Qlik Technologies stemmed from a period in the loan market when primary issuance was stalled due to financial market volatility that disrupted usual syndication channels.

Leveraged finance market conditions have since improved. Admittedly, the deal’s structure would be a tougher decision by Thoma Bravo in current conditions than those of two months ago, when risk-averse investors shunned complex-story credits or pushed for economic and structural concessions to levels that made buyouts unattractive.

What’s more, this transaction isn’t expected to close until the third quarter, when financial market conditions could be far different than those offered in what is, for now, a buoyant environment for credit. Minimizing risk due to the syndication process is far more attractive to a buyer in most cases.

The transaction is subject to shareholder and regulatory approvals.

A merger deal announced last week stoked expectations that larger loan deals may be ahead from BDCs. Ares Capital, which trades on Nasdaq under the ticker ARCC, announced on May 23 it would buy rival lender American Capital, which trades on Nasdaq as ACAS, for $3.4 billion.

Ares management made no secret of the fact that the company’s purchase of American Capital would allow Ares to originate larger loans, thus generating more underwriting and distribution fees.

In an investor presentation about the purchase of American Capital, Ares pointed out how volatile market conditions had led to enhanced pricing and terms, and increased regulatory burden for banks was opening opportunities for them.

Market volatility—as well as increased regulatory scrutiny of commercial banks that emerged more than two years ago—had already opened the door to club-like transactions by BDCs, which will likely hold the majority of the debt for the Qlik deal.

BDCs are able, and willing, to accept higher leverage levels than banks. In the case of Qlik Technologies, the transaction is expected to result in leverage of more than 6x, sources said.

What’s more, the company generates most revenue outside the U.S., and EBITDA is highly adjusted, creating a structurally complex deal, sources said. Significant cost savings are expected through the buyout.

Such adjustments can present hurdles for banks looking to gain internal approvals to underwrite debt deals, and the prospect of a new alternative financing channel could spur renewed interest in buyout business.

Notably, the $1.075 billion unitranche loan for Qlik Technologies accounts for around one-third of the roughly $3 billion purchase price. Under terms of the acquisition, Qlik shareholders will receive $30.50 in cash per share.

Ares Capital says it is committed to holding a large portion of the financing. At the same time, Ares Capital said it would lead a syndication process to attract more lenders to the credit facility, but only a small part is expected to be syndicated.

“We believe this transaction is representative of the growing acceptance of direct lending as a mature asset class, and we believe our market leading position puts us in the forefront of this paradigm shift,” said Kipp deVeer, Ares Capital CEO, in a statement today.

Ares Capital is no stranger to larger-sized deals.

Last year, Ares Capital closed an $800 million loan for American Seafoods Group, another example of a non-regulated arranger capturing lending business that usually would have gone to a large bank. American Seafoods used proceeds to refinance debt and fund a bond exchange.

The amount of Ares Capital’s exposure to this investment has since shrunk.

As of March 31, the fair value of the American Seafood investment in Ares Capital’s investment portfolio totaled $81.7 million, including first-lien debt, second-lien debt, equity, and warrants. The largest of these was a $55 million, L+900 second-lien loan due 2022, with a fair value of $53 million.

The per-share purchase price for Qlik represents a 40% premium over $21.83, which was the average share price in the 10 days prior to March 3.

On March 3, activist shareholder Elliott Management unveiled an investment in Qlik Technologies, a move that prompted the company to put itself up for sale. Later that month, Qlik hired Morgan Stanley to explore a possible sale of the company, Reuters reported. — Abby Latour

Versa Media Capital received a $100 million financing facility from Crayhill Capital Management.

Versa Media Capital is a newly formed company that will provide bridge financing for independent film and television production, as well as mezzanine, gap, and tax credit loans. The team expects to structure and close financing for 15–20 projects per year.

The company was founded by Jeff Geoffray, Jeffrey Konvitz, and Daniel Rainey.

Geoffray co-founded film financing company Blue Rider Finance, which underwrote and financed over 70 transactions on films with over $700 million in production costs. Konvitz is an entertainment attorney. Rainey is a private equity investor and attorney.

CORE Entertainment, the owner and producer of American Idol, has filed for bankruptcy as the once-popular television show concluded its final season.

The company’s debt included a $200 million 9% senior secured first-lien term loan due 2017 dating from 2011, and a $160 million 13.5% second-lien term loan due 2018. U.S. Bank replaced Goldman Sachs as agent on both loans, which stem from Apollo’s buyout of the company, formerly known as CKx Entertainment, in 2012.

Principal and interest under the first-lien credit agreement has grown to $209 million, and on the second-lien loan to $189 million, court documents showed.

The debtor also owes $17 million in principal and interest under an 8% senior unsecured promissory note.

CORE Entertainment, and its operating subsidiary Core Media Group, owns stakes in the American Idol television franchise and the So You Think You Can Dance television franchise.

The company’s business model relied upon continued popularity of American Idol and So You Think You Can Dance. In late 2013, the company sold ownership of most of rights to the name and image of boxer Muhammed Ali, and of trademarks to the name and image of Elvis Presley and the operation of Graceland, and failed to acquire assets to offset the loss of that revenue.

The bankruptcy filing was blamed on the cancellation of American Idol by FOX for the 2017 season. Following a decline in ratings, FOX said that the 2016 season would be the show’s final one.

The filing was today in the U.S. Bankruptcy Court for the Southern District of New York. — Abby Latour

Intelsat debt and shares advanced today after the satellite giant reported better-than-expected first-quarter results and reaffirmed its 2016 sales and earnings outlook based on the ongoing demand for broadband data, a heavy backlog of contracts, the successful launch of a new satellite last month, and preparation for the launch of more of its next generation fleet.

Most notably, however, investors heard that that a first-lien guarantee is now in place on a previously non-guaranteed series of Intelsat Jackson 6.625% senior notes due 2022, and that CC/Caa3 paper surged six points, to 64/65, according to sources.

Other bonds at various spots in the multi-tiered issuer were mixed. The previously guaranteed Intelsat Jackson 5.5% senior notes due 2023, which are notched higher, at CCC/Caa2, slipped two points, with trades reported on either side of 63, while the same entity’s first-lien 8% notes due 2024 dipped three quarters of a point, to 103.25/103.75, according to sources and trade data.

Meanwhile, at parent Intelsat Luxembourg 8.125% notes due 2023, which are a deeper step lower, at CC/Ca, the paper advanced two points, to 28.5/29.5, according to sources. And other “Jackson” bonds were steady, like the 7.5% notes due 2021, which held 69.5/70.5, the sources added.

Over on the NYSE, the company’s shares, which trade under the symbol “I,” increased roughly 6.5% this morning, to $3.93.

In the loan market, the Intelsat’s B-2 term loan due 2019 (L+275, 1% floor) was marked 94.125/94.625 on the results, up from either side of 94 prior, albeit a 95 context a week ago, according to sources.

Revenue in the quarter was $552.6 million, which was down from $602.3 million in the year-ago first quarter, but roughly 2% higher than the S&P Global Market Intelligence consensus estimate for $542.8 million, filings showed. As for the EBITDA result, first-quarter earnings were $407.5 million, which was down from $460.5 million last year, but right in line with the S&P GMI consensus mean estimate for $408.4 million.

Looking ahead, the company left unchanged via reaffirmation its full-year 2016 outlook for revenue of $2.14–2.20 billion and adjusted EBITDA to $1.625–1.675 billion, filings show.

Recall that the abovementioned, first-lien 8% notes were issued at par last month, with B–/B1 ratings, via Goldman Sachs and Guggenheim to support general corporate purposes, including prepayment in full of an intercompany loan of $360 million that upstreamed a dividend to parent “Luxembourg.” That issuance halted access to the “Jackson” undrawn revolver and triggered the guarantee to the 6.625% notes, according to a company statement.

Luxembourg-based Intelsat completed its IPO in April 2013, but a BC Partners–led group named Serafina still owns a majority of the satellite concern’s common shares. Prior to today’s rally, the company’s market capitalization on the NYSE was approximately $400 million. — Matt Fuller/Kerry Kantin

TPG Specialty Lending, a BDC trading on the NYSE under the ticker TSLX, said originations totaled a near-record $399 million in the recent quarter.

These originations compare to a gross total of $305 million in the final quarter of 2014 and $185 million in the quarter ended Sept. 30. The most recent quarter was the second strongest quarter for originations since TPG’s inception.

Among the new additions to the portfolio in the final quarter of 2015 was a significant piece of M&A financing for Idera, a loan deal that priced wide to talk in volatile market conditions. The loan funded an acquisition of Embarcadero Technologies, which was a portfolio company of TPG.

In October, TPG added a $62.5 million piece of Idera’s loan due 2021 at a cost basis of $56.4 million and $55.9 million at fair value. The loan accounts for 6.8% of TPG’s net assets.

Asked about the loan in an earnings call today, co-CEO Josh Easterly said TPG was able to co-invest in Idera across platforms and was motivated by an intimate knowledge of the software industry and the acquisition target.

“We were able to go in with size, with a big order, to drive terms on a credit we knew that benefited TSLX shareholders,” Easterly said.

Another addition to the investment portfolio was a $45 million first-lien loan due 2021 to MatrixCare, the company’s 10-K filed yesterday after market close showed. Interest on the loan is 6.25%. Fair value and the cost of the loan was $44.1 million as of Dec. 31, the 10-K showed.

GI Partners acquired Canadian healthcare IT company Logibec from OMERS Private Equity in December. OMERS retained Logibec’s former U.S. subsidiary, MatrixCare, which provides health records to long-term care and senior-living facilities.

Also during the quarter, TPG received repayment of a loan to bankrupt grocery store chain operator Great Atlantic & Pacific Tea Co. (A&P).

Exits and repayments totaled $155 million in the most recent quarter, for a net portfolio increase of $129 million in principal. The fair value of the investment portfolio was $1.49 billion as of Dec. 31, reflecting positions in 46 companies. Some 88% of the portfolio was in the first-lien debt of U.S. middle market companies.

Oil and gas

The BDC’s exposure to the troubled oil and gas sector was 3.2%, at fair value, in two investments: Mississippi Resources and Key Energy Services. This compared to oil and gas exposure of 4% for the portfolio as of Sept. 30, which included a loan to Milagro Oil & Gas. A bankruptcy judge confirmed a reorganization plan for Milagro on Oct. 8.

The investment in upstream E&P company Mississippi Resources included a $46.7 million 13% (including 1.5% PIK) first-lien loan due 2018 and equity. The Key Energy investment is a $13.5 million first-lien loan due 2020, booked with a fair value of $10.5 million in TPG’s portfolio, the SEC filing showed.

“We will opportunistically review situations,” Easterly said of potential lending to the oil and gas sector.

Non-accruals

TPG Specialty Lending had no investments on non-accrual status at the end of the quarter.

Earlier this month, TPG nominated a board member and proposed severing what it called TICC Capital’s failed management agreement with TICC Management. TPG owns roughly 3% of TICC Capital stock. An earlier stock-for-stock offer by TPG for TICC was rejected.

The move by TPG came after a shareholder vote at TICC in December that blocked a plan to change TICC Capital’s investment advisor to Benefit Street Partners.

“We believe the result of the shareholder vote not only reflects the demand for TICC shareholders for better management and governance, but also heralds an inflection point for the broader BDC industry to build a culture of accountability and shareholder alignment,” Easterly said today.

NAV

Net asset value per share declined to $15.15 at year-end, from $15.62 as of Sept. 30, and from $15.53 a year earlier. The decline was due to unrealized losses, widening credit spreads in the broader market, and volatility in the energy sector.

Shares of TPG were trading at $16.01 at midday today, up more than 1%, but the stock drifted down to $15.89 in afternoon trade. — Abby Latour

Crossroads Capital, a tiny BDC once targeting pre-IPO equity, announced this week it would liquidate its investment portfolio and distribute cash to shareholders.

This news comes after activist Bulldog Investors became the largest shareholder of the company, previously called BDCA Venture. BDCA Venture changed its name from Keating Capital in July 2014.

Crossroads Capital’s investments are in preferred stock, common stock, subordinated convertible bridge notes, subordinated secured notes, and equity warrants, although under previous management the company made an eleventh-hour attempt to switch to a debt strategy.

However, as of Jan. 25, the company’s investment strategy became “preservation of capital and maximization of shareholder value,” and will immediately pursue a sale of investments.

The plan to liquidate “was made after considerable analysis, review and deliberation. Both management and the board believe this is the most efficient way to deliver the company’s underlying value to our shareholders,” a Jan. 25 statement said.

Among the investments in the portfolio as of Sept. 30 are social media content company Mode Media, ecommerce network Deem, online dating company Zoosk, software company Centrify, renewable oils company Agilyx, human resources software company SilkRoad, waste management company Harvest Power, and solar thermal energy company BrightSource Energy.

Net assets totaled $54.5 million as of Sept. 30, 2015, or $5.63 per share, consisting of 12 portfolio company investments with a fair value of $39 million and cash and cash equivalents of $16.2 million. Shares in Crossroads Capital, which trade on Nasdaq as XRDC, closed at $2.10 yesterday.

In September 2014, the company’s previous board approved a change in strategy to focus on debt of private companies, moving away from venture equity. The change was part of then-management’s attempt to reduce the company’s stock discount to NAV.

But this plan was too little, too late, for some.

In May, Bulldog Investors filed a proxy statement soliciting support for a plan to elect its own board members, terminate an external management agreement with BDCA Adviser, and pursue a plan to maximize shareholder value through liquidation, a sale, or a merger.

Bulldog Investors criticized the strategy to convert BDCA Venture away from venture capital–backed or high-growth companies into an income-oriented fund, saying the BDC’s small size and high expense ratio meant the plan was “almost certainly doomed to fail.”

BDCV’s shares were trading at $5.05 at the time the proxy was filed in May 2015, a 25% discount from its March 31 NAV of $6.71. That compared to a listing price of $10 at the time of the company’s IPO on Nasdaq in December 2011.

In contrast, BDCV’s expenses in the three years prior to the proxy totaled $13.25 million, or $1.33 per share, according to the Bulldog proxy.

The plan laid out in May 2015 has more or less come to pass.

In July, shareholders elected Bulldog-nominated directors Richard Cohen, Andrew Dakos, and Gerald Hellerman. A proposal to terminate the investment advisory agreement with BDCA Venture Adviser failed to pass in a vote at the 2015 annual meeting, but was approved by the board in October.

CEO Timothy Keating resigned in late July, replaced by COO Frederic Schweiger. Around that time, the company held equity investments in 12 portfolio companies, 11 of which were private portfolio companies and the other which was publicly traded Tremor Video. The company did not expect any of the private companies to complete an IPO in 2015.

Schweiger resigned as CEO in December, and was replaced by Ben Harris. Harris is a director of NYSE-listed Special Opportunities Fund.

At the same time, BDCA Venture announced a name change to Crossroads Capital. The ticker changed to XRDC on Nasdaq, from BDCV. — Abby Latour

The leveraged finance marketplace is abuzz this morning ahead of a conference call to address to a plan of liquidation for the Third Avenue Focused Credit mutual fund following big losses this year, mild losses last year, heavy redemptions, and now a freeze on withdrawals. The news was publicly announced last night by the fund, and there will be a call at 11 a.m. EST for shareholders with lead portfolio manager Thomas Lapointe, according to the company.

Market sources yesterday relayed rumors of a near-$2 billion redemption from the asset class, and as one sources put forth, “the odd thing was it was difficult to trace the money that left, what was sold, and where it went.”

That was followed up by last night’s whopping, $3.5 billion retail cash withdrawal from mutual funds (72%) and ETFs (18%) in the week ended Dec. 9, according to Lipper, although it’s not entirely clear if that figure—the largest one-week redemption in 70 weeks—can be linked to Third Avenue. (LCD subscribes to weekly fund flow data from Lipper, but cannot see inside the aggregate observation.)

Nonetheless, it’s worthy of a dive into the open-ended fund, which trades under the symbol TFVCX. The fund shows a decline of 24.5% this year, versus the index at negative 2.94%, after a 6.3% loss last year, versus the index at positive 2.65%, according to Bloomberg data and the S&P U.S. Issued High Yield Corporate Bond Index.

It’s an alternative fixed-income fund that’s “extremely concentrated,” and “hardly representative of a ‘high yield’ or ‘junk bond’ fund,” outlined Brean Capital’s macro strategist Peter Tchir in a note to clients this morning. He highlighted that Bloomberg analytics show a portfolio that’s almost 50% unrated, nearly 45% tiered at CCC or lower, and just 6% of holdings rated BB or B.

The holdings are all fairly to extremely off-the-run, hence the trouble selling assets to meet redemption, and thus, the liquidation. The remaining assets have been placed into a liquidating trust, and interests in that trust will be distributed to shareholders on or about Dec. 16, 2015, according to the company.

Top holdings follow, and none have traded actively or very much in size of late, trade data show:

Amid those any many others of a similar ilk, the fund also reports a holding in Vertellus B term debt due 2019 (L+950, 1% LIBOR floor). The chemicals credits put the $455 million facility in place in October 2014 as part of a refinancing effort, pricing was at 96.5, and it’s now at 78/82, sources said.

“Investor requests for redemption … in addition to the general reduction of liquidity in the fixed income markets, have made it impracticable for FCF going forward to create sufficient cash to pay anticipated redemptions without resorting to sales at prices that would unfairly disadvantage the remaining shareholders,” according to the company statement.

“In line with its investment approach, FCF has some investments in companies that have undergone restructurings in the last eighteen months, and while we believe that these investments are likely to generate positive returns for shareholders over time, if FCF were forced to sell those investments immediately, it would only realize a portion of those investments’ fair value given current market conditions,” the statement outlined.

The average bid of LCD’s flow-name high-yield bonds fell 132 bps in today’s reading, to 89.03% of par, yielding 10.58%, from 90.35% of par, yielding 10.05%, on Nov. 19. Performance within the 15-bond sample was deeply negative, with 12 decliners against two gainers and a lone constituent unchanged.

Today’s decline is a seventh-consecutive observation in the red, and it pushes the average deeper below the previous four-year low of 91.98 recorded on Sept. 29. As such, the current reading that has finally pierced the 90 threshold is now a fresh 49-month low, or a level not seen since 87.93 on Oct. 4, 2011.

The decrease in the average bid price builds on the negative 58 bps reading on Thursday for a net decline of 190 bps for the week. Last week’s losses were also heavy, so the average is negative 369 bps dating back two weeks, and the trailing-four-week measure is much worse, at negative 545 bps.

Certainly there has been red across the board, but several big movers of late continue to greatly influence the small sample. For example, in today’s reading, Intelsat Jackson 7.75% notes were off six full points—the largest downside mover today, to 44, and now 20.5 points lower on the month—while Hexion 6.625% paper was off five points, at 73.5, and Sprint 7.875% notes fell 5.5 points, to 77.

The market has been crumbling especially hard this week, with energy and TMT credits leading the charge, amid a lack of participation, the influence of speculative short-sellers, and despite signs that retail cash has been flowing into the asset class. There was a similar dynamic after Thanksgiving last year, sending the average to the year-end low of 93.33 on Dec. 16, 2014.

As for yield in the flow-name sample, the plunge in the average price—with many names falling into the 80s and a couple of others more deeply distressed—has prompted a surge in the average yield to worst. Today’s gain is 53 bps, to 10.58%, for a 2.92% ballooning over the trailing four week. This is a 13-month high and level not visited since 10.70% recorded on June 10, 2010.

The average option-adjusted spread to worst pushed outward by 47 bps in today’s reading, to T+791, for a net widening of 167 bps dating back four weeks. That level represents a wide not seen since the reading at T+804 on Sept. 23, 2010.

Both the spread and yield in today’s reading remain much wider than the broad index. The S&P U.S. Issued High Yield Corporate Bond Index closed its last reading on Monday, Nov. 23, with a yield to worst of 7.88% and an option-adjusted spread to worst of T+652.

Bonds vs. loans
The average bid of LCD’s flow-name loans fell nine bps, to 96.31% of par, for a discounted loan yield of 4.42%. The gap between the bond yield and discounted loan yield to maturity is 616 bps. — Staff reports

The data

Bids fall: The average bid of the 15 flow names dropped 132 bps, to 89.03.
Yields rise: The average yield to worst jumped 53 bps, to 10.58%.
Spreads widen: The average spread to U.S. Treasuries pushed outward by 47 bps, to T+791.
Gainers: The larger of the two gainers was Valeant Pharmaceuticals International 5.875% notes due 2023, which rebounded 3.25 points from the recent slump, to 85.25.
Decliners: The largest of the 12 decliners was Intelsat Jackson 7.75% notes due 2021, which dropped six full points, to 44, amid this fall’s ongoing deterioration of the credit.
Unchanged: One of the 15 constituents was unchanged in today’s reading.

Activision Blizzard is seeking a $2.3 billion senior secured A term loan in connection with its $5.9 billion purchase of King Digital Entertainment.

Moody’s this morning assigned a Baa2 rating to the TLA. S&P Ratings Services earlier this month assigned a BBB issue-level rating and a 1 recovery rating to the proposed term loan.

As reported, Activision Blizzard obtained loan commitments from Bank of America Merrill Lynch and Goldman Sachs earlier this month. The original commitment, though, was outlined as a B-2 tranche maturing in 7.5 years, with pricing at L+300, with a 0.75% LIBOR floor and six months of 101 soft call protection.

Activision Blizzard then approached existing lenders for an amendment to seek the A term loan. As of Sept. 30, there was $1.9 billion outstanding under the company’s existing B term loan due Oct. 2020 (L+250, 0.75% LIBOR floor).

Under the terms of the acquisition, Activision Blizzard is paying $18 a share and plans to fund the deal with $3.6 billion of offshore cash on hand. The purchase price implies a multiple of 6.4x King’s estimated 2015 adjusted EBITDA.

An arranger group led by Deutsche Bank this afternoon launched a $1 billion B term loan for T-Mobile USA, Inc., setting price talk of L+300, with a 0.75% LIBOR floor, offered at 99.5, sources said. Lenders to the seven-year covenant-lite loan are offered six months of 101 soft call protection.

At current talk, the loan would yield roughly 3.89% to maturity.

The wireless-communications provider will use the proceeds for general corporate purposes, which may include the acquisition of additional spectrum, sources said. The Federal Communications Commission is planning to auction off spectrum early next year in the 600 MHz band, sources noted. The auction is expected to kick off by the end of first quarter of 2016.